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Purpose The purpose of this paper is to obtain new knowledge about the accounting measurement of financial sustainability in local governments, by studying the influence of political factors on the evolution of income statements. Design/methodology/approach This paper analyses income statements of Spanish municipalities from 2006 to 2014, together with mayor profiles and political-institutional factors, using the generalised method of moments system. Findings The income statement represents a useful measure to assess financial sustainability, showing the effect of political factors on three dimensions proposed by IFAC (i.e. service, revenue and debt), such as ideological coincidence, political competition, political ideology, and absolute majority or political fragmentation. Practical implications The findings can be useful for policymakers and accountants responsible for accountability, supervisory bodies, fiscal authorities, voters, users of public services and other stakeholders interested in governmental income statements. Social implications In the Eurozone, the crisis of government finance has made the citizens and the policymakers question the size and volume of public services. Likewise, in countries such as Spain, politicians remain one of the main problems for citizens. These circumstances make it very interesting and timely to study the accounting measurement of financial sustainability and its political explanations. Originality/value The findings provide new empirical evidence about the accounting measurement of financial sustainability in local governments, and they identify political factors that influence the evolution of income statements.

In many countries, the economic crisis brought high volumes of deficit and debt in public entities, which jeopardized the ability of governments to continue providing public services and caused considerable imbalances of economic growth in different regions. In this context, from the recognition of the linkage between economic development and efficiency in public management, previous research indicates that local governments are called to play a key role in promoting sustainable development through environment, economic and social policies based on financial sustainability of the public services. This paper aims to identify influencing factors on the financial sustainability of local governments, as an indicator of their capacity to maintain the delivery of public services over time. Based on a sample of 139 Spanish municipalities with large population for the period 2006-2014, our findings reveal the influence of variables such as the unemployment rate by sector, the dependent population, the immigrant population and the level of education of the population, on the financial sustainability in local governments, providing new useful knowledge to managers, policymakers, researchers and others stakeholders interested in the sustainability of public services.

In recent years, the financial sustainability of local authorities has been recognised as a concept of crucial importance in ensuring that public services may continue to be delivered to future generations. Although many European countries have implemented programmes to enhance their financial sustainability, local authorities are characterised by differing administrative traditions and achieve diverse outcomes in response to the reforms made. Taking a comparative approach, the present study identifies institutional, macroeconomic and microeconomic factors that might influence local authorities’ financial sustainability in England and Spain in order to determine and explain similarities and differences in the drivers and risk factors for financial sustainability in local authorities’ provision of public services. Points for practitioners This article is based on three major theories (agency theory, neo-institutional theory and stakeholder theory) related to the institutional, macroeconomic and microeconomic factors determining financial sustainability and aims to identify these factors comparing different contexts (English and Spanish contexts). This identification of factors that influence municipal financial sustainability could clarify what policymakers might have done to prevent the crisis, what they should do to prevent similar failures in the future and how the long-term provision of public services may be ensured.